ALL MARKETS – Oil jumps, stocks fall as Iran tightens grip on Strait of Hormuz
* Oil prices jump after Iran attacks UAE port, hits South Korean ship in Hormuz
* Central banks are turning hawkish as oil-driven inflation complicates the outlook for the ratio
* Yen volatility disrupts forex markets, analysts cite possible Japanese intervention (Updated after the stock market closes in New York)
May 4 (Reuters) – Oil prices fell 6% on Monday and stocks fell as Iran escalated its military campaign, sinking several ships in the Strait of Hormuz and setting fire to a UAE oil port.
Brent futures rose $6.27, or 5.8%, to settle at $114.44 a barrel, while US West Texas Intermediate (WTI) crude rose $4.48, or 4.4%, to settle at $106.42. The moves came after US President Donald Trump vowed at the weekend that the US military would open the door by force, sparking the biggest escalation of hostilities since a ceasefire was declared four weeks ago.
The Strait of Hormuz, through which about a fifth of the ocean’s oil and gas flows normally flow, has been severely disrupted for two months.
US stocks fell sharply, with the Dow Jones Industrial Average down 1.13%, the S&P 500 down 0.41%, and the Nasdaq Composite down 0.19%.
“The longer oil prices stay above $100 a barrel, the more fiscal stimulus from the 2025 tax cuts goes from being a stimulus to being a deterrent,” said Brock Weimer, analyst, investment strategy, at Edward Jones. MSCI’s broad index of global shares outside Japan fell 0.22%. In Europe, German automakers withdrew regional funding after Trump said on Friday he would raise tariffs on European cars and trucks.
The pan-European STOXX 600 index fell 0.99%. The yield on Germany’s 10-year bond, the euro zone bloc’s benchmark, rose 5 basis points to 3.08%. Markets in London were closed for a public holiday.
CENTRAL BANKS TURN HAWKISH AS OIL GUYS THREAT FINANCIAL STRENGTH
The threat of oil-driven inflation has pushed up bond yields and tightened the monetary policy environment around the world.
Markets are no longer expecting the Federal Reserve to cut rates this year, and rates have already started from both the European Central Bank and the Bank of England. Barclays on Monday joined other brokerages in predicting that the Fed will not ease policy this year. Friday’s April payrolls report may continue to change expectations.
The yield on the benchmark US 10-year note rose 6 basis points to 4.438%.
YEN VOLATILITY KEEPS FOREX TRADERS ON THE EDGE
Currency markets were also volatile, with traders closely watching for signs of Japanese intervention to support the yen.
The dollar fell sharply against the yen in Asian trade before reversing course. The Japanese yen ended down 0.04% against the greenback at 157.12 per dollar. Analysts believe Tokyo may have already stepped in last week to the tune of $35 billion.
“The case for intervention is strong, given the impact of a weak yen on import prices, American managers are comfortable with such action, and many Japanese FX funds,” said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.
The euro fell 0.24% to $1.1692 while sterling weakened 0.29% to $1.3532.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.28% to 98.44.
In commodity markets, local gold fell 2.13% to $4,515.27 an ounce.
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